The Zhitong Finance App learned that during the European trading session on Wednesday, three-month copper on the London Metal Exchange (LME) rose 2.7%, a two-year high, reaching 10,390 US dollars per ton. Meanwhile, the price of copper futures on the New York Mercantile Exchange once surged more than 4%, reaching a record high. Copper prices have advanced rapidly recently, reflecting people's optimism that the global economy, led by the US, will resume growth, as well as optimism about the Chinese economy. Additionally, people who want to benefit from continued inflationary pressure are also in demand for copper.
It is worth noting that the US basic inflation index cooled down for the first time in six months in April. The data released by the Federal Reserve yesterday showed that the core consumer price index (CPI), which excludes food and energy costs, rose 0.3% month-on-month and 3.6% year-on-year, in line with expectations. The previous value was 3.8%. Institutional analyst Adam Button said that today's US CPI report opened the door for the Federal Reserve to cut interest rates again today and led to a round of widespread dollar sell-off. Guolian Securities said that in 2024, the central banks of overseas economies represented by the Federal Reserve will restart interest rate cuts to boost the economy, and the suppression of copper prices will gradually weaken.
At the same time, Minmetals Securities said that in the context of “secondary inflation,” industrial metal prices all rebounded sharply against the backdrop of continued tightness on the mining side. In terms of financial attributes, interest rate cuts were delayed at the beginning of the year, overseas inflation returned, and financial products denominated in US dollars were generally strong. At the supply and demand level, the resumption of production on the mining side was delayed, and TC continued to decline. The reduction in production at domestic and foreign smelters reduced production. The return of the global manufacturing PMI to the expansion range indicates that the manufacturing industry is beginning to bottom up to drive a recovery in demand.
Furthermore, the developed economies of the US, Europe, and Japan, and China may be at the end of the current round of inventory removal cycles. Combined with the manufacturing boom in major ASEAN economies, the manufacturing boom has returned to the expansion range one after another since 2023H2, and it is expected that the stock replenishment cycle will resonate at home and abroad. Currently, overseas demand is the first to recover, and LMEX copper stocks will be eliminated by more than 20% since 2024. On the domestic side, considering the energy transition's impact on power grids, power-side investment, and the lithium battery industry chain, the domestic manufacturing PMI hit a new high of nearly a year in March and significantly exceeded expectations.
On the supply and demand side, against the backdrop of ongoing disturbances on the mining side and remaining concerns on the smelting side, combined with domestic and foreign demand recovery, CITIC Securities expects the global balance of refined copper supply and demand to be -158,000 tons in 2024, which is expected to shift from a tight balance to a slight shortage. As demand recovers and medium- to long-term supply growth declines, the bank expects the global refined copper supply gap to widen drastically from 2025. The balance between global refined copper supply and demand is expected to be -65.4/-940,000 tons from 2025 to 2026.
Meanwhile, Zambia is cutting electricity supply, and the China-Africa copper belt is facing a reduction in production. If the production of 1/5 of mining companies in Zambia is affected, it is estimated that 152,000 tons of copper production will be affected. Copper mine production cuts continue to occur, and expectations for the resumption of production at the CobrePanama and SOSSEGO copper mines, which were cut off earlier, have been postponed again. In 2023, global copper production was 22 million tons, of which Zambia produced 760,000 tons and Congo gold produced 2.5 million tons, accounting for 3.5% and 11.4%, respectively.
Tianfeng Securities said that due to frequent incidents of short-term mining side disturbances on the supply side, output fell short of expectations, and low capital expenditure limited mine-side supply. Although many new production capacity was put into operation on the smelting side, considering the rapid decline in processing costs and limited increases in raw material side raw ore and copper scrap, it is expected that electrolytic copper output will be limited. On the demand side, traditional global demand is expected to recover, and demand for new energy sources is expected to continue to increase over the next few years. The current global copper inventory level is at a historically low level against the background of an increase in tight supply and demand. It is expected that the copper price center will rise steadily in the medium to long term.
Furthermore, the rapid rise of artificial intelligence computing is driving the demand for copper to rise rapidly. Demand for copper in data centers is mainly concentrated in power distribution equipment (75%), grounding and interconnection (22%), and pipeline HVAC (3%). Furthermore, Nvidia's GB200 super AI chip is leading a new chapter in “high-speed copper connectivity.” As data center construction progresses and electricity consumption continues to rise, demand for copper continues to grow. Guojin Securities estimates that global data centers will use about 46-1.12 million tons of copper in 2026. AI and 5G promote the increase in PCB output value and the upgrading of the electronic circuit copper foil industry. It is estimated that in 2026, the amount of copper foil used for PCBs in China and the world will be 35.84/683 million tons, respectively.
According to a recent CITIC Securities research report, copper prices have continued to rise since March 2024, once breaking through 9,500 US dollars/ton. Looking forward to the future, the bank believes that the copper supply and demand pattern may turn into a shortage as the mining side continues to be tight and production cuts on the smelting side are expected to be implemented, and the time of the combined active inventory replenishment cycle at home and abroad is approaching. In terms of financial attributes, copper's trading logic transitioned from previous interest rate cut expectations to inflation expectations, providing support for copper prices in terms of demand and cost. It is recommended to allocate the domestic copper sector according to the dimensions of “growth, value and combination”.
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Minmetals Resources (01208): Committed to exploring copper and zinc resources, a leading global contributor to copper and zinc resources. The company has always been committed to the mining industry, mainly mining copper and zinc, as well as a small amount of gold and silver mineral resources. As a diversified basic metals company, Minmetals Resources has four operating mines. The company's largest shareholder is China Minmetals Hong Kong Holdings Co., Ltd., and Minmetals Resources is a central state-owned enterprise. The company's future operating income and profit will increase significantly as the Las Bambas copper mine resumes full operation.
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